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Slow & Steady: New Home Sales Push Higher

Before we get into today’s new home sales report, I would like to kindly remind everyone that the monthly supply of inventory for new homes has been higher every month in this cycle,compared to the last one. The monthly supply fell to 5.2 months according to today’s report.

From Fred: https://fred.stlouisfed.org/series/MSACSR

Today, the Census Bureau reported that new home sales beat expectations of 667,000 with sales of 689,000 homes. The previous months numbers were revised downward but the trend for 2018 is still beating my expectations for the year. New home sales are growing at 8.8% so far this year. In the up-coming months, we will see if the rate of growth slows due to higher mortgage rates. As always, it’s all about the revisions for new home sales and revisions are coming in negative in the recent reports but still positive for yearly growth. The trend of 660,000 new home sales for 2018 is still very low in historical context, especially when considering the duration of this economic expansion and how low-interest rates have been. However, the current trend is beating my sales estimates of 2%-5% growth for 2018. The good news from this report is that the median sales price is cooling off, which is a positive indicator for future growth. Since the end of 2014 one of my big themes for continued growth for new homes is that the pace of median home prices cool off in terms of rate of growth. This has been the case after the strong move up in median prices from the start of 2012 to the end of 2014. The relationship to slower rate of growth prices has more due to smaller homes being sold into the mix.

” I expect to see 2%-5% growth in new home sales that could go higher if the median sales price remains stable and the trend of building smaller homes continues. ”

New Home Sales:Sales of new single-family houses in May 2018 were at a seasonally adjusted annual rate of 689,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.7 percent (±14.1 percent)* above the revised April rate of 646,000 and is 14.1 percent (±19.9 percent)* above the May 2017 estimate of 604,000.

Sales Price:

The median sales price of new houses sold in May 2018 was $313,000. The average sales price was $368,500.

For Sale Inventory and Months’ Supply:

The seasonally-adjusted estimate of new houses for sale at the end of May was 299,000. This represents a supply of 5.2 months at the current sales rate.

New home sales are still low. The claims of “record breaking demand” are greatly exaggerated and this is why the builders aren’t building more homes. In fact, the significant year over year growth in housing starts this year is coming from the multifamily sector. However, the slow and steady climb of new home sales is still working. Since sales are still historically low, this sector has legs and this is a positive for the U.S. economy as we have no massive over investment thesis in this economic cycle from housing.

All is all, a good report, keep and eye out on future revisions if they still come in negative, this will curb in the total new home sales for 2018. However, I still believe my call for 2%-5% growth should stick for 2018. Also, if the cooling down in median home price growth continues, a beat of over 5% is in the works.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami